India doubles consumption of branded rice in four years: Rabobank

According to the report, branded rice can seek about 33% premium above loose rice at the retail level, while a modern retailer can earn a margin of 20% .Jayashree Bhosale | ET Bureau | September 23, 2015, 11:40 IST

PUNE: Private equity firms could be looking at increasing their exposure to India’s branded rice segment where domestic sales have doubled in the last four years, according to industry executives and a report from Rabobank.

According to the report, branded rice can seek about 33% premium above loose rice at the retail level, while a modern retailer can earn a margin of 20% compared with 12% for loose rice.

Increasing the lure for PE firms is a forecast that the branded segment is likely to become more important for rice companies from profit point of view as the country’s rice exports are likely to halve in the next five years due to stagnant production and growing local consumption.

“With stagnant domestic production of rice and growing local consumption, exports can decline from current 10 million tonnes to just about 5-6 million tonnes by 2020,” said Shiva Mudgil, senior analyst, food and agribusiness research and advisory, at Rabobank.

Between 2008 and 2013, the Indian rice industry saw investment from some global players. McCormik invested in Kohinoor Foods through the joint venture route in 2011. Ebro Foods, a leading pasta manufacturer, bought out the (RICE) operations of Olam India in 2013.

The interest has not died down. Some industry sources said the next round of investment in rice companies can happen soon.

“Some private equity investors had contacted us in the past, but we were not keen at that time. However, we may be open to such investment in future,” said Hiten Bhimani, director of Shree Gajanan Industries.

An industry executive, who did not wish to be identified, said, “Companies like Haryana-based Best Foods, which has been exploring various investment options, could be one of a bunch of interesting companies likely to be picked up by the investors.”

In India, which accounts for a fifth of the global rice production and a fourth of global rice exports, a large number of traders and millers have been launching their own rice brands as increasing purchasing power of consumers fuels offtake of better quality rice in convenient packs from stores.

Last year, the Adani group joined this club by launching ‘Fortune Basmati’ rice.

According to the Rabobank report, though the share of branded rice in the overall domestic rice market is small in terms of volume, in terms of value it is expected in increase by $1.1 billion to reach $3.5 billion by 2017.

Consumption of branded rice is growing in both southern as well as northern India. However, the grains being sold in the south are smaller in size are mainly non-Basmati.

Rabobank’s Mudgil said that with more rice companies investing in creating a brand, rice is no longer seen as just another commodity.

To ensure brand loyalty, regional players are trying to emulate the strategy adopted by big companies. Like their larger counterparts, they are now launching rice in 1 kg, 5 kg and 10 kg packs.

According to Rajesh Shah, one of the biggest distributors of Kohinoor Basmati rice, brand awareness has increased more at the wholesale level than retail level. “About 20 years ago, we used to get rice from different states in gunny bags, with just the weight mentioned on it without any brand name. Now all the rice in bulk comes as branded.”

Shree Gajanan Industries of Nizamabad had registered its brand and launched consumer packs of 1kg and 2 kg in 2000. “However, we could not get much response being ahead of time. Now, with rise of modern retail, more than 50% of rice sale in south India consists of the local brands, mostly in 25-kg packs, which take care of a month’s requirement of the south Indian family,” said its director, Bhimani.

In last four years, the CAGR of leading Indian rice companies has ranged between 20% and 30%, thanks to exports, growth of branded segment and modern retail.

In 2014, India shared the top spot in rice exports with Thailand. According to a recent Rabobank report, thought the consumption pattern of Indians is shifting from cereals towards protein-rich diets, among cereals, the traction is towards better quality products. This is reflected in consumer shift towards packaged, branded products with better colour, grain size and post cooking attributes like aroma and taste.

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